Investors with losses in Summit Healthcare REIT (“Summit”), a non-traded real estate investment trust (Non-Traded REIT), may have arbitration claims if a broker or advisor made a recommendation to purchase the shares without a reasonable basis or misled the customer as to the nature of the investment. Summit, headquartered in Lake Forest, California, invests in a diversified, income-producing portfolio of assets in the healthcare sector, focusing its investments on operators of senior housing facilities in the United States. Summit acquires, leases, and manages healthcare real estate and invests in the healthcare sector and diversifies by property type, location, and tenant. Publicly-available information suggests that shares of Summit have significantly decreased in value and are now worth less than $2 a share.
MacKenzie Realty Capital has reportedly offered to purchase up to 330,000 shares of Summit for only $1.34 per share in a tender offer – which would leave investors who sold facing a significant loss on the original purchase price. Secondary market providers that allow investors to bid and sell illiquid products such as Non-Traded REITs value Summit shares at between $1.50 and $1.56, and the sponsor estimates their value at $2.53 a share.
Unfortunately for many investors in Summit, it would appear that any attempt to exit their illiquid investment will incur a substantial loss. Aside from their illiquid nature, non-traded REITs also present significant additional risks. One of these risks has to do with their high cost. In most instances, non-traded REITs are sold through a network of independent broker-dealers and associated financial advisors, who earn steep commissions (ranging up to 10%) on sales of non-traded REITs to investors. In addition to the sales commission charged, non-traded REITs typically charge other expenses, including certain due diligence and administrative fees (that can range anywhere from 1-3%).
According to studies, non-traded REITs have historically underperformed even safe benchmarks, like U.S. treasury bonds – meaning that non-traded REITs, on average, provide very low returns relative to the risk investors take of losing their principal. Further, while sold to retail investors around the country by independent broker dealers, alternative investment products like oil and gas partnerships, REITs, and equipment leasing programs are actually seldom suitable recommendations for ordinary retirees and other investors of modest means and limited risk tolerance.
Many retail investors may have bought into non-traded REITs without first being fully informed of the risks associated with these complex and illiquid investments. As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with non-traded REITs, including recovering losses through FINRA arbitration, as well as litigation. Investors may contact our office at (866) 966-9598 or via email at firstname.lastname@example.org for a no-cost, confidential consultation.